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Pennsylvania has enacted legislation requiring certain remote sellers, marketplace facilitators, and referrers to elect to either collect and remit Pennsylvania sales tax or comply with notice and reporting requirements. If any of the above do not collect and remit sales tax, they must notify purchasers regarding the sales and use tax, and report specified information regarding purchasers or remote sellers to the Pennsylvania Department of Revenue.

 

For purposes of the legislation, a "remote seller" is a person who does not maintain a place of business in Pennsylvania and who, through a forum, makes retail sales of tangible personal property that is subject to sales or use tax. Marketplace facilitators, marketplace sellers, referrers, and employees are not considered remote sellers. A "marketplace facilitator" is a person who facilitates retail sales of tangible personal property by listing or advertising tangible personal property for sale in any forum and either directly or indirectly through agreements/arrangements with third parties, collects payment from the purchaser and transmits payment to the seller. A "referrer" is a person, other than a person who prints or publishes a newspaper, who has an agreement/arrangement with a marketplace seller or remote seller to:

 

  • list or advertise for sale one or more products of a marketplace seller or remote seller;
  • receive consideration from the marketplace seller or remote seller from the sale offered in the listing or advertisement
  • transfer a purchaser to a marketplace seller, remote seller, or affiliated person to complete a sale.
  • does not collect a receipt from the purchaser for the sale.

 

“Referrer” includes a person that may also be a vendor. “Referrer” does not include a person who provides internet advertising services and does not provide the marketplace seller or remote seller’s shipping terms or advertise whether the marketplace seller or remote seller collects a sales or use tax. A "marketplace seller" is a person who has an agreement with a marketplace facilitator under which the marketplace facilitator facilitates sales for the marketplace seller.

 

By March 1, 2018 and June 1 of each calendar year thereafter (beginning June 1, 2019), remote sellers, marketplace facilitators, and referrers with aggregate sales of $10,000 or more in the previous 12-month period must elect to collect and remit Pennsylvania sales tax or comply with the notice and reporting requirements. The Department has not yet released information about making the election.

 

For marketplace facilitators, the election requirement applies to:

 

  • retail sales through the marketplace facilitator’s forum that are made by or on behalf of a marketplace seller that does not maintain a place of business in Pennsylvania; and
  • retail sales made by a marketplace facilitator on its own behalf, if the marketplace facilitator does not maintain a place of business in Pennsylvania.

 

For referrers, the election requirement applies only to retail sales:

 

  • directly resulting from a referral of a purchaser to a marketplace seller that does not maintain a place of business in Pennsylvania;
  • directly resulting from a referral of a purchaser to a remote seller; and
  • of the referrer's own products if the referrer does not maintain a place of business in Pennsylvania

 

Remote sellers and marketplace facilitators will be required to post a conspicuous notice on their forums to inform Pennsylvania purchasers that:

 

  • sales or use tax may be due in connection with the purchase and delivery;
  • Pennsylvania requires the purchaser to file a return if use tax is due; and
  • the notice is required under statute.

 

Remote sellers and marketplace facilitators must also provide writtent notice to purchasers at the time of sale that includes:

 

  • a statement that sales tax is not being collected in connection with the purchase;
  • a statement that the purchaser may be required to remit use tax directly to the Department of Revenue; and
  • instructions for obtaining additional information from the Department regarding whether and how to remit the use tax.

 

The notice must be prominently displayed on all invoices and order forms and on each sales receipt or similar document.

 

Referrers electing to comply with the notice requirements will be required to post a conspicuous notice on their platforms to inform Pennsylvania purchasers that:

 

  • sales or use tax may be due in connection with the purchase and delivery;
  • the person to whom the purchaser is being referred may or may not collect and remit sales tax to the Department of Revenue in connection with the transaction;
  • Pennsylvania requires the purchaser to file a return if use tax is due and is not collected by the person to whom the purchaser is being referred; and
  • the notice is required under statute.

 

The notice must also contain instructions for obtaining additional information from the Department regarding use tax.


By January 31 of each year, a remote seller or marketplace facilitator that elects to comply with notice and reporting requirements must provide a written report to each purchaser required to receive the notice. The report must include:

 

  • a statement that the remote seller or marketplace facilitator did not collect sales tax on the purchaser's transactions and that the purchaser may be required to remit use tax to the Department;
  • a list, by date, indicating the type and purchase price of each product purchased or leased by the purchaser from the remote seller or marketplace facilitator and delivered to a location within Pennsylvania;
  • instructions for obtaining additional information from the Department regarding whether and how to remit the use tax;
  • a statement that the remote seller or marketplace facilitator must submit a report to the department that includes the purchaser's name and the aggregate dollar amount of the purchases made from the remote seller or marketplace facilitator; and
  • additional information as required by the department.

 

By January 31 of each year, remote sellers and marketplace facilitators that elect to comply with notice and reporting requirements must also provide a written report to the Department of Revenue. For each purchaser required to receive the notice during the previous calendar year, the report must include:

 

  • the purchaser's name;
  • the purchaser's billing address and, if different, the purchaser's last know mailing address;
  • the address in Pennsylvania where products were delivered to the purchaser;
  • the aggregate dollar amount of purchases that the purchaser made from the remote seller or marketplace facilitator; and
  • the name and address of the remote seller, marketplace facilitator, or marketplace seller that made the sales to the purchaser.

 

By January 31 of each year, a referrer that elects to comply with notice and reporting requirements must provide a written report to each remote seller to whom the referrer transferred a potential purchaser located in Pennsylvania during the previous calendar year. The report must include:

 

  • a statement that Pennsylvania may impose sales or use tax on the transaction;
  • a statement that the remote seller may be required to elect to either collect and remit the sales and use tax or comply with notice and reporting requirements; and
  • instructions for obtaining additional information regarding sales and use tax from the Department.

 

By January 31 of each year, referrers must also provide a report to the Department containing a list of remote sellers who received the notice described above.

 

The notice requirements and requirements for providing reports to the Department of Revenue:

 

  • are effective February 1, 2018, and will apply beginning on April 1, 2018, for sales of products and services other than digital products and related services; and
  • are effective February 1, 2019 and will apply beginning on April 1, 2018, for digital products and related services.

 

Penalties for non-compliance with the notice and reporting provisions will be $20,000 or 20% of the total sales in Pennsylvania during the previous twelve months, whichever is less, against a remote seller, marketplace facilitator or referrer that makes an election to comply with the notice and reporting requirements or is deemed to have made such election and fails to comply.  The penalty shall be assessed separately for each violation but may only be assessed once in a calendar year.  For a period of five years after the effective date, the Department may abate or reduce the penalty due to hardship or for good cause.

 

A positive provision in the bill prohibits the filing of a class action against a marketplace facilitator or a referrer on behalf of purchasers related to an overpayment of sales or use tax collected by the facilitator or referrer, regardless of whether such action is characterized as a tax refund claim.  Purchasers will retain their right to file for a tax refund from the Department.

 

If federal legislation relating to remote sellers has not been enacted by December 31, 2018, the Independent Fiscal Office, in conjunction with the Department, shall conduct a study assessing the legal implications and fiscal impact of mandating notice requirements for remote sellers. (Act 43 (H.B. 542), Laws 2017)

(11/20/2017)

The Multistate Tax Commission (MTC) has announced a sales/use tax and income/franchise tax amnesty program for online sellers that will run from August 17 to November 1, 2017 (previously October 17, 2017). Qualified online sellers with potential tax liability may be able to use the MTC's voluntary disclosure agreement (VDA) to negotiate a settlement during the amnesty period if they meet certain eligibility requirements. Taxpayers that have not been contacted by any of the states participating in the amnesty program will be able to apply to start remitting sales tax on future sales without penalty or liability for unpaid, prior accumulated sales tax in the participating states. 25 MTC member states have agreed to participate in the amnesty program. The participating states include: 

 

  • Alabama
  • Arkansas
  • Colorado (sales/use tax only)
  • Connecticut
  • District of Columbia (may not waive all prior periods)
  • Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts (special provisions apply)
  • Minnesota (special provisions apply)
  • Missouri
  • Nebraska (may not waive all prior periods)
  • New Jersey
  • North Carolina
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Texas 
  • Utah
  • Vermont
  • Wisconsin (will require payment of back tax and interest for a lookback period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax)

 

Some of the additional states may require a limited look-back period for prior tax liabilities. Sellers who wish to participate in the program will need to file the voluntary disclosure program paperwork during the program dates. The MTC will route the paperwork for each participating state for which the seller is seeking amnesty protection. For more details visit the MTC website.

 

UPDATE: The Multistate Tax Commission's online seller amnesty program is now over. If you didn't take advantage of this program but realize you need to evaluate your activities, you can contact us here.

(11/07/2017)

On June 12, 2017, Rep. Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goodlatte (R-VA) introduced the No Regulation Without Representation Act of 2017. A previous version of this bill had been introduced in 2016 and failed to pass. Under the proposed bill, a State may tax or regulate a person’s activity in interstate commerce only when such person is physically present in the State during the period in which the tax or regulation is imposed. Under the proposed bill, the physical presencerequirement would apply to sales and use taxand net income and other business activities taxes, as well as the states’ ability to regulateinterstate commerce. “Physical presence” in a state includes:

 

  • maintaining a commercial or legal domicile in the state;
  • owning, holding a leasehold interest in, or maintaining real property such as an office, retail store, warehouse, distribution center, manufacturing operation, or assembly facility in the state;
  • leasing or owning tangible personal property (other than computer software) of more than de minimis value in the state;
  • having one or more employees, agents or independent contractors present in the state who provide on-site design, installation, or repair services on behalf of the remote seller;
  • having one or more employees, exclusive agents or exclusive independent contractors present in the state who engage in activities that substantially assist the person to establish or maintain a market in the state; or
  • regularly employing in the state three or more employees for any purpose.

 

“Physical presence” in a state would not include:

 

  • entering into an agreement under which a person, for a commission or other consideration, directly or indirectly refers potential purchasers to a person outside the state, whether by an Internet-based link or platform, Internet Web site or otherwise;
  • any presence in a state for less than 15 days in a taxable year (or a greater number of days if provided by state law);
  • product placement, setup or other services offered in connection with delivery of products by an interstate or in-state carrier or other service provider;
  • Internet advertising services provided by in-state residents which are not exclusively directed towards, or do not solicit exclusively, in-state customers;
  • ownership by a person outside the state of an interest in a limited liability company or similar entity organized or with a physical presence in the state;
  • the furnishing of information to customers or affiliates in such state, or the coverage of events or other gathering of information in such state by such person, or his representative, which information is used or disseminated from a point outside the state; or
  • business activities directly relating to such person's potential or actual purchase of goods or services within the State if the final decision to purchase is made outside the state.

 

In addition, the bill prohibits the imposition or assessment of a sales, use or other similar tax or a reporting requirement unless the purchaser or seller has physical presence in the state.  This would prohibit all the remote seller legislation (click through, affiliate, economic, marketplace and reporting/notification). If enacted, the legislation would apply with respect to calendar quarters beginning on or after January 1, 2018. (No Regulation Without Representation Act of 2017)

(07/12/2017)

Pennsylvania has revised a legal letter ruling regarding sales and use tax on canned software support services, including guidance regarding support services for digital property. The original ruling issued February 9, 2017 provided that all support services including phone support, consulting and training related to canned computer software was taxable.  This ruling was withdrawn in March 2017.  

 

The new ruling which was reissued April 4, 2017 has clarified the department’s position regarding consulting and training services. The state’s definition of “tangible personal property” had previously been amended to expressly include certain specified items including canned software, downloaded digital goods, and maintenance, updates and support of the newly defined electronic or digital tangible personal property. The Department of Revenue considers “support” to mean providing advice or guidance concerning otherwise taxable digital or electronic tangible personal property. This includes identifying the source of problems affecting usability and/or attempting to place the property in or restore the property to a useable state. This includes, but is not limited to, help desk support or call center support. The support may be delivered verbally, online, or through automated means that reside on customer's device or by human means. The support may be delivered by the property vendor or a third-party support provider who may or may not have remote access to the customer's device. Providing support is taxable regardless of the method of billing as long as it is to support a taxable product or digital good. Technical support for canned software is considered taxable if it falls within the Department’s definition of “support.” 

 

The reissued ruling has clarified that training is not included in the Department’s definition of “support.” “Support” does not include consulting unless activities described as consulting fall within the Department’s definition of support. The letter ruling states that since consulting may be used to describe various activities, the ruling may not be interpreted as a definitive determination of the taxability of what taxpayers may describe as consulting. Based on this ruling, software providers and customers should clearly describe the services provided and distinguish services that are not related to the maintenance, update and support of taxable computer software. (Legal Letter Ruling No. SUT-17-001, Pennsylvania Department of Revenue, April 4, 2017)

(05/17/2017)

On April 27, 2017, a bipartisan group of senators introduced the Marketplace Fairness Act of 2017 (MFA). Similar legislation was introduced in both 2013 and 2015 and failed to be enacted both times. If enacted, the legislation would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. The small seller exception is set again at $1 million of remote sales annually. The only other significant change from the 2015 version is a prohibition of making the effective date during the 4th quarter of the calendar year. For information on the previous versions of the bill, visit Senate Introduces Marketplace Fairness Act of 2015.  

 

On April 27, 2017, a bipartisan group of lawmakers introduced the Remote Transactions Parity Act (RTPA) of 2017. Similar legislation was introduced in 2015 but failed to be enacted. Like the MFA, the legislation would also create sales and use tax collection obligations for remote sellers, but has some differences and additional provisions. Some key differences from the Marketplace Fairness Act include a different definition of a small seller.  The RTPA has a phased in threshold starting at $10million in year one, then $5million, then $1million.  In year 4, there is no threshold.  In addition to the monetary thresholds, any seller that sells on an electronic marketplace is considered a small seller.  A difference from the 2015 version of the bill is an inclusion of a definition of remote seller which specifies when a company is NOT a remote seller which includes physical presences for more than 15 days in a state, leasing or owning real property and using an agent to establish or maintain the market in a state if the agent does not perform business services in the state for any other person during the taxable year.  For more information on the Remote Transaction Parity Act of 2015, visit House Introduces Remote Transactions Parity Act of 2015. (Marketplace Fairness Act of 2017, Remote Transactions Parity Act of 2017)

(05/04/2017)

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